Small businesses will get great help from the SECURE 2.0 Act
Small businesses and their employees have benefited from the new retirement rules. This will make it easier for small businesses to offer retirement plans, ultimately helping to close the retirement savings gap for small businesses.
According to AARP, about 5 million companies with about 57 million employees do not have workplace retirement plans.
Read: Which comes first? Emergency savings or retirement goals?
A new set of retirement rules was introduced as part of the federal appropriations bill signed at the end of December. Among the provisions collectively known as Secure 2.0 is an expanded tax credit for employees to pay administrative costs when her less than 50 businesses start new plans.
Previously, employers with fewer than 100 employees were eligible for a tax deduction of up to 50% of their plan’s administration costs, up to an annual limit of $5,000. Secure 2.0 increases this credit to her 100% of costs for employers with up to 50 employees. Employers with up to 50 employees may be eligible for an additional credit toward eligible employer contributions of up to $1,000 per employee, according to Vanguard, although this is limited to employee From 51 to her 100 are being phased out.
Read: Can emergency savings give you a stronger financial future? This Secure 2.0 provision is built on top of that.
“There is an epidemic of people retiring from small businesses,” said Brandon Rees, president of retirement planning at TBS. “These changes will help small businesses, help employees who otherwise cannot save, and reduce the burden on Social Security. It creates a ripple effect.”
According to a study published by ShareBuilder 401k, nearly three-quarters (74%) of small businesses currently do not have employee retirement plans.
ShareBuilder survey respondents cited three main reasons for not starting a plan. Expensive to set up and manage.
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“Small businesses find it burdensome, expensive, and risky to provide retirement plans. But technology has changed, making it easier. And some states are mandating that they have to play a role and make it available and that also makes a difference,” said Ubiquity Retirement and Savings’ best said Chad Parks, Executive Director and Founder. “A lot has been done to make it very easy to offer a retirement plan.Why aren’t you doing it?”
The Secure 2.0 provision “could help change that and strengthen the small businesses that make up America’s backbone,” Parks said.
At the state level, efforts are being made to encourage small businesses to offer retirement plans. More than 30 states are considering enacting state-mandated retirement plans for businesses of all sizes. Fourteen of these states have signed programs that require retirement planning to become law.
The new Secure 2.0 rule now provides federal pressure to encourage small businesses to offer retirement plans.
Ultimately, this will help small businesses become more competitive in attracting and retaining employees, as they compete with larger companies whose HR departments offer large benefit packages, experts say. I’m here.
“100% cost coverage is a powerful weapon for SMEs to retain top talent,” said Nick Fawkes, Advisor and Director of Great Waters Financial.
Parks said there is a misconception that employers are required to contribute to retirement plans. There are no such requirements.
Still, the Secure 2.0 provision could cost small businesses if their plan costs more than $5,000 a year or if they use it long term to support the weight of their plan after the credit expires. says Foulks.
In total, 52% of employers offer their employees a 401(k) or similar employee-funded retirement plan. According to a 2021 report from the Transamerica Institute, a nonprofit private foundation that includes the Transamerica Center, employee-funded plans are more common in large enterprises (90%) compared to small businesses (44%). and more commonly offered by medium-sized businesses (83%). For retirement studies.
“People know they should save for retirement, right? People have inertia. Saving can be difficult. It can be confusing. Maybe that’s why hundreds of thousands of people are heading for the cliff,” Parks said.
According to the National Institute on Retirement Security, the average working family has minimal retirement savings. Including all households, not just those with retirement accounts, the median retirement account balance is $2,500 for all working households and $14,500 for those approaching retirement.
That may explain why about 40% of seniors rely solely on Social Security for their retirement income, according to the National Institute for Retirement Security. As of July 2022, the average monthly Social Security benefit for retired workers is $1,624.
“SECURE 2.0 is an absolute game-changer for small businesses and what they can and can offer. It’s one of the biggest changes in 15, 20 years,” said Reese.
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